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Real Estate Deal Analysis & Advice

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Ed B.
  • Real Estate Investor
  • Sacramento, CA
96
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275
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Need advice-Sell now, or hold for future profit?

Ed B.
  • Real Estate Investor
  • Sacramento, CA
Posted Oct 19 2014, 19:14

Almost 10 years ago I invested into a single family home remodeling project, which was to be sold upon completion. That never happened, thanks to the recession of 2008. With carrying costs, my original $268,000 investment has ballooned to about $500,000. I have a chance to sell it now, but at a loss of about $315,000. However, it’s a strong rental market and it will rent for enough to cover expenses, and leave about$15,000 extra yearly. I’m tempted to hold onto it for up to four years to see how much more it might appreciate, but am unsure how to calculate my yield. Would I use my total overall investment of $500,000, or just the amount I’d receive if I sold now, which would be $183,000? I’m thinking it would be the latter, because the only thing that seems to matter is how much cash I’d have to use for alternative investments. My total investment of $500,000 is in a sense irrelevant because I can’t access it.

My options appear to be:Don’t sell, and base my future yield off the $183,000 I chose not to receive by not selling, or  Sell now, take the $183,000 cash to invest elsewhere, and base my yield on that as a starting number. My future cash flow and any appreciation would be a percentage yield off the original investment. Correct?

If I keep and rent it for up to four more years, and with projections of 3% annual increases in income, expenses and appreciation, the potential gain at end of four years is about $234,000, not including any tax benefits.That appears to be a 32% annual yield, and if correct, seems to make a strong case for keeping it and hoping for a better time to sell than now. However, if my projections are off, the final numbers could be worse, or maybe even better. Clearly, the appeal is that it allows me to “convert” a $315,000 loss into a $234,000 profit—potentially. If I were to sell and invest the $183,000 elsewhere, I’d need to earn about 23% annually to accumulate the same amount at the end of four years.

I’d appreciate any opinions on which option might be the best one!

Thanks

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